Consider a firm with a production function such that the marginal product of labor (MPL) and the marginal product of capital (MPK) are given by MPL=10-L and MPx=24-2K labor costs $20 per unit and capital costs $30 per unit, and if the firm is using 10 units of capital and 5 units of labor, what recommendations would you make to the firm regarding their input mix to increase profits ? O Move towards a more capital intensive production process. O Move towards a more labor intensive production process. O There is not enough information to tell. O The input mix is already maximizing profits.
Consider a firm with a production function such that the marginal product of labor (MPL) and the marginal product of capital (MPK) are given by MPL=10-L and MPx=24-2K labor costs $20 per unit and capital costs $30 per unit, and if the firm is using 10 units of capital and 5 units of labor, what recommendations would you make to the firm regarding their input mix to increase profits ? O Move towards a more capital intensive production process. O Move towards a more labor intensive production process. O There is not enough information to tell. O The input mix is already maximizing profits.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
E1
Transcribed Image Text:Consider a firm with a production function such that the marginal product of labor (MPL) and the marginal product of capital (MPK) are given by:
MPL = 10-L
and
MPx=24-2K
If labor costs $20 per unit and capital costs $30 per unit, and if the firm is using 10 units of capital and 5 units of labor, what recommendations
would you make to the firm regarding their input mix to increase profits?
O Move towards a more capital intensive production process.
O Move towards a more labor intensive production process.
There is not enough information to tell.
O The input mix is already maximizing profits.
QUESTION 11
The Lerner Index informs us of whal kind of goods we'd expect to see higher markups, i.e. price relative to the marginal cost of production.
Which of the following statement is consistent with this perspective and the implications of the Lerner Index?
O Firms producing relatively inexpensive goods would have relatively more price setting power.
Firms with goods that are highly elastic would have relatively more price setting power.
O Firms producing necessary goods would be expected to have relatively less price setting power.
O All of these are consistent with the implications of the Lemer Index.
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